Remember the Teflon market? It sure seems 2012 started of in this “teflon” way. Markets are climbing the wall of worry, and nobody wants to miss out on the bull (nor the bear). Europe is still the main character in this debt soap opera. Some great insight on the Euromezz by Grant Williams of Things that make you go hmmm.
As we enter 2012, it is clear that Europe is still the focus of most people’s attention (although I suspect the gradual shift towards the Middle East is a trend that should and will accelerate in coming weeks) and I firmly believe that the continent is finally heading towards a resolution in 2012.
I suspect that resolution will NOT be pretty, will result in much upheaval and, ultimately, mean the end of the euro (at least in its current form), but from the ashes of that resolution we will find the clarity we need to move forward and put the past 2 years of ever-worsening headlines behind us.
Greece is done. Period. They cannot remain in the Eurozone – nor should they and, with the next bailout package (this time north of €100bln) being due in March when a whopping €17.5bln of Greek debt will need to be sold (although, between now and then, any of the 5 smaller auctions – starting with next week’s €2bln could tip the scales), it’s hard to see how they make it past that point. The Troika’s visit to Athens on January 16th will no doubt ramp up the rhetoric once more, but realistically handing ANOTHER €100bln+ to the Greeks would be both cavalier and stupid.
Great news, market is soaring on thin volume. This could turn out to be very interesting start to the year. It reminds us very much of last year’s start to the year. Markets are trying to break up on light volume, people are forced into buying this rally, and many of the “smart” shorts are covering in this very thin market. Let’s not forget, the World needs to refinance many trillions of debt this year, and yes rates will probably stay very low. El Erian on the zero rate policy, that must hold, or….By Bloomberg;
“You’ll see policy rates in the U.S. and Europe floored at or near zero,” Newport Beach, California-based El-Erian said in the interview. “I don’t think there will be any appetite or need to raise interest rates in the U.S. and Europe.”
The Federal Reserve has said it will keep its target rate for overnight loans between banks between zero and 0.25 percent through mid-2013, and is now selling $400 billion of its short- term Treasuries and reinvesting the proceeds into longer-term government debt in a program traders dubbed Operation Twist.